Do your sales people frequently offer discounts before they should? Has it become almost an addiction in order to get a sale? This is indeed very bad news for your profitability and future prospects.
Perhaps your sales team have been brainwashed into thinking that discounting is the only way they can close a deal and they so fear losing a sale because of price that they negotiate privately with themselves and come in far too low. Rather than selling value they are carelessly throwing away your business’ profit, possibly at every opportunity.
In most cases it's not deliberate sabotage, it's just habit. Occasionally your salespeople may feel that the prices you are charging are too high and believe that by discounting or giving away free goods they are somehow being fairer. In most cases though it's just to get the sale and the commission that goes with it.
Profit is necessary, not evil, and discounting at every opportunity is a sure fire way to lose that profit. As the boss it is your responsibility to make sure all your employees appreciate that fact. Every penny your sales force gives away affects your profit and their ability to get paid - that last point should get them to sit up and take notice!
If you were to ask your sales team what they understand to be the ten most important responsibilities of their job, very few (if any) would include "protecting and maximising profits", “preserving price integrity” or “implementing my boss’ pricing strategy” on that list. Without them being educated to realise the importance of these three essentials then you may struggle to maintain your profits.
An Alternative to Discounting
Your salespeople also need to understand the importance of selling on value - and that a premium price is a premium price because the buyer will profit in some way from the purchase. Unless your salespeople communicate this fact to potential customers then it's unlikely those customers will be willing to part with their cash.
This "profit" to them may not be financial - it may be your superior service, product reliability or quality, a better environment, even superior staff to serve them! These things all cost you money and will naturally be reflected in your prices.
Some of your employees may not have considered these benefits before and are discounting merely because they are comparing your prices with competitors in the marketplace and simply believe your prices are too high.
It's almost embarrassing at times the way people don't understand all the ways they bring value.
- Tom Reilly
Rather than automatically playing the discount card your sales people should be shouting from the rooftops about the superiority of and benefits associated with your products; they should go armed into a sales meeting with testimonials from past successes and a documented history of your company to enhance confidence in the company and the products.
Selling on value also engenders customer loyalty which in turn leads to future sales and increased profit.
Educating your staff about price, profit and selling on value will greatly influence their future selling attitude and behaviour - and should discourage any unauthorised discounting.
Break the Addiction of Selling on Price Alone
OK, so you've re-educated your salespeople to desist from discounting at every opportunity - great! However, it's not just discounting that can become addictive – selling purely on price can also be an addiction and knowing the cold hard truth about profit may not be sufficient to prevent a relapse. You are going to have to break this addiction by going cold turkey.
This is done by not allowing any deviation from your set prices but this approach can be somewhat softened by having different prices that represent different levels of value – segmenting your prices into basic, standard and premium models for example.
It is not sufficient to say that you are the only person who can approve a discount. There must be no deviation from the policy of selling on value either. It may be a hard lesson to learn but if your salespeople are given an option to discount or waiver from selling on value they will probably continue to do so.
There can be absolutely no reason to chip away at your profit and your pricing strategy must be strictly enforced.
Stay Committed to Anti-Discounting
No one suggests that this is a quick and easy strategy to implement but you must stay strong if you want to retain your profitability. It doesn't matter how good your pricing strategy is if your sales force are constantly discounting and undermining what you are trying to achieve.
The unintended consequence of heavily discounting at the wrong time and in the wrong circumstances will be that your buyers, sensing little value, choose not to buy either now or in the future. You should sell based on value and leave the overused discount card to be played by others.
The Discount Deception - Why Dropping Your Price Hurts You! by Victor Antonio, 2014
Priceless. The Hidden Psychology of Value by William Poundstone, 2014